TOKYO—Sharp Corp. 6753.TO -3.60% is banking on a proprietary technology with an unproven track record to revive its fortunes after it soon reports what's expected to be the largest annual loss in its 100-year history.

The technology is IGZO, short for indium gallium zinc oxide, and it's a semiconductor material developed to make liquid crystal displays. It appears to be a major step forward from the more common silicon-based alternatives, promising twice as much battery life, sharper images and a more than fivefold increase in the sensitivity of touch screens for smartphones and tablets.

"IGZO will be the technology to rescue Sharp," Takashi Okuda, the company's president, told a news conference Nov. 1 as the electronics maker warned that its financial situation was so tenuous it was worried about its future as a "going concern."

Mr. Okuda isn't alone in having high expectations for the material. "IGZO has the potential to be a groundbreaking technology," says Hiroshi Hayase, a Tokyo-based analyst for the research firm NPD DisplaySearch.

Sharp must prove that it's moving ahead technologically as it scrambles to find new sources of capital to repair its battered balance sheet and to keep existing bank lenders committed to its future.

Sharp's problems are many. It bet big on state-of-the-art LCD factories in Japan, only to see demand for LCD televisions slow and the yen strengthen. It is on track for a loss of nearly $9 billion over the past two fiscal years, and its interest-bearing debt dwarfs its cash on hand by a ratio of seven to one.

IGZO is aimed at a large and fast-growing market. In the fourth quarter, smartphone shipments increased 36% from a year earlier, to 219.4 million units world-wide, while tablet shipments surged 75% to 52.5 million units, according to research firm IDC.

Because screens are the biggest energy drain for mobile devices, IGZO screens could deliver major improvements in battery life—a significant technological hurdle—for the fast-growing products. IGZO can also be used for the larger displays on television sets, but the energy-saving benefits make the technology better suited for portable gadgets now.

Sharp started mass production of IGZO screens in March 2012. The screens are more energy efficient because they don't need to be refreshed constantly to prevent an image from flickering. Sharp says a standard amorphous silicon display may refresh itself 60 times a second when an image is on the screen, while IGZO refreshes itself only once a second.

That's because electrical current can move faster using IGZO rather than the amorphous silicon found in many LCD screens. The improved electrical flow lets Sharp shrink the size of its transistors, and smaller transistors mean smaller pixels. Meanwhile, it can pack more pixels into the display, resulting in a higher-resolution screen. By combining energy saving with the ability to cram more pixels into every inch of display, Sharp says, IGZO offers a significant competitive advantage.

Also providing a boost: Apple Inc.'s AAPL -1.73% success marketing its "retina" displays, which have raised consumer awareness about the benefits of having more pixels on small screens. The original iPhone's screen offered 163 pixels an inch, but the iPhone 5's larger retina display packs 326 pixels an inch. And Samsung Electronics Co.'s 005930.SE -0.20% new Galaxy S4 crams 441 pixels an inch onto a five-inch display.

But all that may not be enough. "IGZO is a very competitive technology. However, it will be difficult for IGZO alone to save the company and solve all of its problems," says Kota Ezawa, a Tokyo-based analyst for Citigroup C -0.49% . "The financial problems are too big."

There is no doubt that creating a business from the technology has been challenging. Ironically, the exclusive advances made by Sharp's IGZO screens are limiting the company's reach. Major electronics manufacturers often insist on at least two suppliers for every key component to ensure stable supply and maintain pricing leverage.

To execute a multiple supplier strategy and ensure that a finished product shares the same features, device makers lay out a common set of specifications for all of their component providers. As a result, if Sharp wants to sell its screens to a customer, it has to water down what its display can do or wait for a rival to catch up.

Sharp has incorporated IGZO screens into its own smartphones and tablets as well as a 32-inch ultrahigh-definition computer monitor. But so far those products are sold only in Japan.

"For Sharp to market IGZO displays globally, it needs a major global client that is willing to use Sharp as a single screen supplier for certain products. Samsung could be such a client," says DisplaySearch's Mr. Hayase.

Earlier this month, Samsung agreed to invest ¥10.4 billion ($110.1 million) in Sharp in exchange for a 3% stake in the company. As part of the alliance, Sharp said, Samsung will get a stable supply of LCD panels for large-size TVs and smaller screens for mobile devices. When asked about IGZO, a Samsung spokesman declined to comment about its future plans.

Samsung has been developing a similar oxide-based LCD technology—demonstrated in a 70-inch panel in 2010 for an industry event—but it hasn't commercialized the technology.

Other manufacturers are also developing IGZO displays. Innolux Corp., 3481.TW 0.00% a unit of Taiwan's Hon Hai Precision Industry Co., 2317.TW -0.96% says that it started producing IGZO displays in small quantities last month. The company says it expects to increase production for tablet computers starting in the second quarter.

AU Optronics Corp., 2409.TW -2.99% another Taiwanese LCD maker, says it has also developed IGZO displays, but it hasn't said if or when it will start mass production.

Meanwhile, Sharp rivals say there are other ways to improve screens' energy efficiency. Japan Display Inc., a government-funded venture that integrated the display businesses of Sony Corp., 6758.TO -2.99% Toshiba Corp. 6502.TO +0.21% and Hitachi Ltd., 6501.TO -0.91% says it has another technology that can increase a screen's brightness without raising the power consumption of the LCD panel. The method adds a white subpixel to the standard red, green and blue subpixels.
—Lorraine Luk in Taipei contributed to this article.